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Colaboration with Eric Shannon, PhD
Primary Challenge
Examine the role of current market structure, including regulatory environment, on the likelihood of market entry as well as the likelihood of becoming a viable competitor to the current market leaders.
Approach
In order to explore these dynamics two sectors will be examined: the airline/aviation industry as well as the mobile telephone industry.
Sectors were selected for the following reasons:
- Neither sector has a geographically limited market within the United States;
- Both sectors are subject to nominal government regulation as it relates to mergers, etc...
- both markets are dominated by a small number of market leaders but susceptible to the entry of “low cost carriers” who attempt to offset market equilibrium.
Hypotheses
H1: There is a polynomial relationship between market specific barriers to entry and the number of firms within a market.
- Dependent Variable: # of Firms within the Market within a given year
- Potential Analytic Strategy: Random effects Poisson model with a polynomial on market specific barriers to entry (average cost of a new start) to determine the functional form of the relationship between barriers to entry and number of firms within a market.
H2: Differences in firm size within markets is predictive of the likelihood of market leader turnover frequency.
- Dependent Variable: A binary outcome of whether there was a change in a market leader within a specific year
- Potential Analytic Strategy: Random effects probit model with firm size variance as the main independent variable of interest
H3: As market size increases there is a decrease in market leader turnover.
- Dependent Variable: A binary outcome of whether there was a change in a market leader within a specific year
- Potential Analytic Strategy: Random effects probit model with lagged market size (total addressable market) as the main independent variable of interest
Preliminary Analysis
Using Panel vector autoregression model (PVAR) based on evaluating the Airline industry financial information, the primary factors that are important in predicting whether an airline is the top firm is whether they're the top firm in time t-1, and time t-2.
